Cutting the welfare budget is unlikely to lead to an increase in private voluntary work and charitable giving, according to research by Nina Boberg-Fazlic and Paul Sharp.
Their study of England in the late eighteenth and early nineteenth century, published in the February 2017 issue of the Economic Journal, shows that parts of the country where there was increased spending under the Poor Laws actually enjoyed higher levels of charitable income.
The authors conclude:
‘Since the end of the Second World War, the size and scope of government welfare provision has come increasingly under attack.’
‘There are theoretical justifications for this, but we believe that the idea of ‘crowding out’ – public spending deterring private efforts – should not be one of them.’
‘On the contrary, there even seems to be evidence that government can set an example for private donors.
Why does Europe have considerably higher welfare provision than the United States? One long debated explanation is the existence of a ‘crowding out’ effect, whereby government spending crowds out private voluntary work and charitable giving. The idea is that taxpayers feel that they are already contributing through their taxes and thus do not contribute as much privately.
Crowding out makes intuitive sense if people are only concerned with the total level of welfare provided. But many other factors might play a role in the decision to donate privately and, in fact, studies on this topic have led to inconclusive results.
The idea of crowding out has also caught the imagination of politicians, most recently as part of the flagship policy of the UK’s Conservative Party in the 2010 General Election: the so-called ‘big society’. If crowding out holds, spending cuts could be justified by the notion that the private sector will take over.
The new study shows that this is not necessarily the case. In fact, the authors provide historical evidence for the opposite. They analyse data on per capita charitable income and public welfare spending in England between 1785 and 1815. This was a time when welfare spending was regulated locally under the Poor Laws, which meant that different areas in England had different levels of spending and generosity in terms of who received how much relief for how long.
The research finds no evidence of crowding out; rather, it finds that parts of the country with higher state provision of welfare actually enjoyed higher levels of charitable income. At the time, Poor Law spending was increasing rapidly, largely due to strains caused by the Industrial Revolution. This increase occurred despite there being no changes in the laws regulating relief during this period.
The increase in Poor Law spending led to concerns among contemporary commentators and economists. Many expressed the belief that the increase in spending was due to a disincentive effect of poor relief and that mandatory contributions through the poor rate would crowd out voluntary giving, thereby undermining social virtue. That public debate now largely repeats itself two hundred years later.
Summary of the article ‘Does Welfare Spending Crowd Out Charitable Activity? Evidence from Historical England under the Poor Laws’ by Nina Boberg-Fazlic (University of Duisberg-Essen) and Paul Sharp (University of Southern Denmark). Published in Economic Journal, February 2017
by Daniel Gallardo Albarrán, appeared on 22nd May 2016
Industrialisation has been the key to modern economic growth and rapidly rising incomes, but some question whether it is always a blessing when taking a broader view of human wellbeing. While the recent rise of China and other Asian economies has transformed the lives of millions, the experience of Britain in the 19th century shows a more mixed picture of development. This column presents a unified framework for measuring British wellbeing over the period 1780-1850, which shows that better health and higher income levels alternated in improving overall wellbeing, until declining health in the 1840s led to stagnating wellbeing.
by Patrick O’Brien (Professor Emeritus,
London School of Economics) and Nuno Palma (Assistant Professor,
University of Groningen)
– Friday 21 October 2016
NEW EHES Working paper
The Bank Restriction Act of 1797 suspended the convertibility of the Bank of England’s notes into gold. The current historical consensus is that the suspension was a result of the state’s need to finance the war, France’s remonetization, a loss of confidence in the English country banks, and a run on the Bank of England’s reserves following a landing of French troops in Wales.
Since Phelps Brown Hopkins published ‘Seven centuries’ in the mid 1950s economic historians and cliometricians have used ‘day wages’ – day rates for masons, carpenters and bricklayers taken from building accounts – to estimate the earnings of workers of the past. Whilst recent work has shown that these rates were not what the masons, carpenters and bricklayers actually received  many historians have been working on the means of earnings of other groups. A wage formation conference at the Institute of Historical Research on 16 September aimed to bring the notion that wages are more multifarious than day rates to the fore. The programme brought research on lead and coal miners, hostmen, keelmen, laundresses, sailors, bankers, spinners, agricultural labourers and clergy to debate, and the features that all these groups had in common in their pay before 1900 was an observation that all who attended shared.
Kicking off the day in opening remarks, Leigh Shaw-Taylor put the conclusions that authors such as Greg Clark, and Robert Allen and others have drawn from long run compilations of builder’s day rates within a theoretical context of structural change, pointing out that the role of real wages and average wages has been confused by cliometricians, and reminding us that Malthus predicted shifts in the wages of the poor, not of the average worker.
In the first presented case of the day Jane Humphries and Ben Schneider (Oxford) overturned the notion, common in recent historiography, that spinners were well paid and part of a high wage economy in England in the 18th century; rather they showed only the most productive spinners in England earned what Arthur Young described, moreover many spinners were employed by parishes at low piece rates under the poor laws. Amy Ridgway (Exeter) presented the only data from agriculture at the conference. Using the records of Kingston Lacy in Dorset she showed that the number of day labourers hired on a casual basis increased throughout the late 18th century and early 19th century, contrary to the established literature. Kathryn Gary (Lund) presented a new wage series for unskilled men in Sweden in the long run. She showed definitively that the wages unskilled men were not enough to support a family.
Four papers presented at the workshop dealt with the earnings of miners or those engaged in the coal industry. Andy Burn (Durham) showed that the keelmen of Newcastle-on-Tyne in the late 17th and early 18th century had pay that consisted of variable elements. Part was for hauling, another part for loading, and the rates varied according to location and season. Although the men were relatively well-paid when they were at work, the seasonality of the trade challenged living standards, and created a public order problem for the authorities. Tim Barmby (Newcastle) has been researching the Allendale lead miners. There men and mine owners bargained a price per fathom to be mined. To bargain effectively they needed to be able to predict, or have better information about the seams and geology that they were mining. Barmby shows that wage bargains were a means by which the mine owners extracted information from the more knowledgable miners. Unsurprisingly, the system produced unequal gains, with the best teams repeatedly winning the bargains. Guy Solomon (Exeter), who has fully quantitatively analysed Peter Kirby’s 2010 data shows that piece rates in coal mining in Northumberland brought about large variations in wage amongst workers doing the same job. Matthew Pawelski (Lancaster) showed how a Derbyshire free miner of the mid 18th century, John Naylor, used his own rights to common mining land to earn a large amount to take him out of a period of significant indebtedness. The case shows that as well as having his own resources, Naylor took local work with other employers when he could, and highlights the multifarious nature of earning for men of this class, and the role of book credit in such small enterprise.
Richard Blakemore (Reading) has spent the last three years looking at how sailors were paid. He debunked the common myth that sailors were an early modern global proletariat paid poorly wages. Instead he shows that Sailors earnings were, again, highly variable – many mariners made money from trading goods between ports. The form in which sailors were paid varied according to risk. Blakemore showed that the bargaining systems between shipowners and mariners benefited both parties at different times. Laundresses – a vital group never properly examined before – are the subject of Kathryne Crossley’s (Oxford) research. Drawing on the records of Oxford Colleges she shows that their status, and the means by which they were paid shifted over the 17th and 18th centuries. In the earlier period they operated as enterprising sole traders, in the 19th century they were integrated into the discipline of college staff. Anne Murphy (Hertfordshire) brought some badly needed research into white collar workers. Bank of England clerks had much in common with sailors – and laundresses – it turns out. The basic salary that the clerks received was at the very lowest end of white-collar earnings in in London. Variation and extra income were earned by the clerks through gratuities, frequently for favours for clients, and trading illegitimately as brokers. Judy Stephenson (Oxford) gave a review approach, centred around the question of trying to work out how representative day wages used in macroeconomics series really are of earners in London across the long eighteenth century. Early research, funded by Cambridge Humanities Grant, indicates that few London workers were paid by the day before 1800. Wouter Marchand (Utrecht) demonstrated that the pay of clergy in early modern Friesland was dependent on the quality of land that church lands produced income from. The clergy are one of those groups that economists love to refer to as sacrificing wages for status. Marchand shows that their wages were not determined by custom. The best paid clergy were in merged or combined parishes on fertile soil.
The commonalities between the cases presented at the workshop was remarkable. These kept coffee breaks and lunch and dinner abuzz with debate, conversation and connections. The most marked was the observation of varying levels of income due to the effects of piece rates, bargaining and variable pay structures. Variation in earnings of people doing the same jobs was a consistent theme throughout the cases presented. Moreover, nearly all the cases showed only small part of income came from basic pay, and auxiliary rates, gratuities, alternate employment and bargains, were used to meet the problems of information asymmetry, seasonality or uncertainty. This was directly related to the materiality of some of the occupations. It was also noted that the agency or bargaining power of workers in a number of sectors was a determinant of their income. A final comment was that that ‘custom’, which dominates a great deal of historical literature, was not mentioned all day as as a determining variable in any of the cases presented.
The conference reinforced the idea held by many participants that wages in the early modern period and nineteenth century were a more complex issue than the use of real wages in long run studies have suggested, but it also showed that the topic of wage formation is ripe for further research. The full proceedings and papers will be published at a later date.